What not to do in wage and hour investigations

published in McAfee & Taft EmployerLINC | March 1, 2017


By Charlie Plumb

Last month the Tenth Circuit Court of Appeals upheld a $2.1 million dollar judgment entered against a Tulsa restaurant for Fair Labor Standards Act (FLSA) overtime and minimum wage violations. If you ever wanted a guide on how not to handle a Department of Labor investigation, here it is. It will make you cringe.

El Tequila and investigation #1

Carlos Aguirre was the owner of four El Tequila Restaurants located in the Tulsa area – on Harvard Avenue, on Memorial Drive, in Broken Arrow, and in Owasso. A complaint from an employee prompted a Wage & Hour Division (WHD) investigation of the restaurant on Harvard Avenue. The investigator toured the restaurant, interviewed employees, and examined payroll records provided by the employer. According to Mr. Aguirre, the employees interviewed, and the payroll records, restaurant personnel were paid an hourly rate of $7.25, generally worked 40 hours per week, and were paid overtime whenever they worked more than 40 hours during any work week. The only FLSA violations identified by the investigator were technical shortcomings of the restaurant’s recordkeeping practices.

Investigation #2

Thereafter, the WHD received more complaints from employees at El Tequila’s Harvard Avenue location. As a result, a new investigation was begun, and this time the WHD investigator appeared unannounced at the restaurant to again talk with employees and review records. The second visit was considerably different from the first.

On this occasion, the WHD learned the payroll records previously provided by Mr. Aguirre were false summaries of hours worked by employees and that the restaurant had withheld timesheets that recorded employees’ actual clocking-in and clocking-out times. In some instances, time entries had been altered by the employer to conceal overtime violations.

The previous employee interviews with the WHD had also been rigged. Mr. Aguirre had instructed employees to lie during their first interviews with the investigator. During the second investigation, employees told the WHD the time records were not accurate and “that they had been forced to sign” the timesheets. El Tequila agreed to pay more than $260,000 to 58 Harvard Avenue location employees for FLSA violations.

Investigation #3

After discovering what had occurred at the Harvard Avenue restaurant, the WHD decided it should investigate the Memorial Drive, Broken Arrow and Owasso restaurants, too. After discovering the same violations at these three locations it had found at the first restaurant, the WHD concluded El Tequila owed more than $380,000 to those employees. El Tequila assured the WHD it would change the way it paid its employees so as to comply with the FLSA.

…but that is not exactly what happened.

More shenanigans and the lawsuit

El Tequila began requiring its employees to clock-in and clock-out by way of cash registers’ touch panels. However, managers manually overrode the system and changed employees’ starting and ending times. The employer reduced the records showing hours worked by submitting false summary sheets of employee times to its accountant, rather than providing the accountant with the register reports. By the WHD’s calculation, restaurant employees were owed an additional $636,483.28. After all that had occurred, the Department of Labor decided it was time to file a lawsuit against EL Tequila in Tulsa federal court.

Under the FLSA, a determination that an employer willfully violated the law has at least two consequences. First, the statute of limitations to file claims is extended from two to three years. Second, the employer is liable for damages to employees going back for period of three years, rather than only two years. Both the Tulsa court and the appeals court in Denver had no difficulty finding El Tequila’s violations were willful, based upon:

  • Falsifying time and pay records
  • Withholding accurate information and documents
  • Misrepresenting how work time was recorded and how employees were paid, and
  • Instructing employees to provide false information to investigators

For its misdeeds, the restaurant was ordered to pay more than $2.1 million to the Department of Labor and El Tequila employees.

WHD investigation best practices

When providing documents, information or interviews in the course of a WHD investigation, honesty is always the best policy. Be professional and cooperative with investigators. Otherwise, don’t be surprised if you get “the full attention” of the Department of Labor, like El Tequila.

  • Perez v. El Tequila, LLC and Carlos Aquirre, Case No. 16-5002 (10th Cir. 2/7/17)